As concern grows over rising health care costs, so do worries about the impact of cost containment efforts on the quality of care. Some observers believe that reducing the rate of cost growth will result in lower quality. Others argue that cost control can lead to higher quality if care is made more efficient. Current market-based approaches to curbing costs while promoting efficiency and preserving quality rest on allowing HMOs and PPOs to contract selectively with health care providers on the basis of price. The objective of this project is to compare the efficiency, quality, and costliness of hospitals where HMOs and PPOs channel their patients with that of hospitals used by patients with traditional indemnity insurance. The specific aims are: 1. To estimate efficient cost-quality "frontiers" for hospitals in different markets, and to assess the inefficiency of each hospital in a market. 2. To determine whether, other things equal, the influence of efficiency, quality, and cost on choice of hospital differs among HMO, PPO, and nonmanaged care patients. 3.To determine whether, compared with the hospital choices of nonmanaged care patients, HMOs and PPOs preferentially channel their members to more efficient hospitals. 4. To determine whether, compared with the hospital choices of nonmanaged care patients, HMOs and PPOs preferentially channel their patients to higher quality hospitals. 5. To determine whether, compared with the hospital choices of nonmanaged care patients, HMOs and PPOs preferentially channel their patients to lower cost hospitals. The conceptual framework for the project is based on an extension of the standard model of utility maximizing consumers that accounts for the unique institutional features of the demand for hospital care. Data sources will include 1993-95 state hospital discharge files from California and Florida. Analyses will be divided into five tasks. Task l will use data envelopment analysis to estimate efficient cost-quality frontiers for the hospitals in each market. Task 2 will use conditional choice models to assess the influence of efficiency, quality, and cost on hospital choice for HMO, PPO, and nonmanaged care patients. Tasks 3, 4, and 5 will use multinomial logit models examine whether HMO and PPO patients preferentially use more efficient, higher quality, and lower cost hospitals, respectively, than nonmanaged care patients. This project will be the first to assess the empirical evidence for the claim that managed care plans provide hospital care of lower cost but equal or higher quality. The project, therefore, will fill a critical gap in the existing literature on managed care. The project also will enhance our understanding of the relationship between cost and quality in hospitals, further our knowledge about the segmentation of hospital markets by insurance status, and contribute to the literature on the factors that influence hospital choice.